How firms benefit from customer segmentation

Chanda Lokendra Kundnaney

Viewpoint

To reiterate from the last article, the ‘Business Model Canvas’ is popular with entrepreneurs and startups for business model innovation. Traditional business plans are like literature books, long and understood by only a few, while BMC provides improved clarity. Owners can focus on what is needed to drive the business and what can be avoided. While traditional plans include 20 to 30 pages of data, BMC focuses on the areas of concern.

It’s a lot easier to tweak the BMC model, ensuring flexibility of thoughts and ideas. Since everything is on a single piece of paper, every team member will have an easier time understanding the business model and be much more likely to buy in to your vision.

Once you have defined the value proposition, the next idea would be to work on your customer segmentation.

It is important for an entrepreneur to recognise from the outset that your target customer is under no obligation to buy your product or service. Every business that wants to remain viable must appeal to its target customer segment or face dissolution.

To ensure a business’ appeal to its customer segment, it must work to understand who the customer is. This can be recognised by evaluating the customer’s environment, experiences and general context. A customer’s geographic, demographic and social context will define his/her persona, creating a customer prototype for your products and services. One needs to define the customer segment and create a customer profile (customer job, customer gains and customer pains).

A customer segment is the community of customers or businesses that you are aiming to sell your product or service to. Customers can be segmented into groups based on needs, behaviour and other traits they share. A customer segment may also be defined through demographics such as age, ethnicity, profession, gender, etc., or on factors such as spending behaviour, interests and motivations.

An enterprise can categorise consumers into groups if they feel that each consumer group feels strongly enough to pay for a different version of the product or service, tailored to their preferences.

The customer profile defines the customer segment more clearly by understanding the customer’s jobs and evaluating their pains and gains. Customer jobs describe what they are trying to achieve in their personal and professional lives. It could refer to the work they are trying to get done, needs that they are trying to satisfy or challenges they are trying to overcome.

There are specific tasks and results that the customer is trying to achieve in his daily life. They are easily defined such as cook a meal, complete my math homework, eat healthier or meet someone. Or how he behaves in a crowd or at the workplace. Also, how emotionally your customer behaves in certain tasks such as participating in a triathalon or having dinner with family every night.

While evaluating customer jobs, it is equally important to evaluate the context in which the job was performed. To explain, there is a marked difference between how a customer would approach going to watch a movie with their children and going to the movies with a significant other. It is important for the entrepreneur to recognise which jobs are crucial to the customer and which ones can be discarded or substituted.

Customer pains are conditions which either prevent the customer from getting a job done or elicit negative emotions before, during or after a job. It can be functional, social or emotional.

Customer gains are results or benefits that customers desire. Some gains will be taken for granted by the customer upon purchasing a product or service, but others might be a surprise for them. Gains are of the following types: functional utility, social gains, positive emotions and cost savings.

There are some basic gains expected by the customer when purchasing a product. Hence a person purchasing a smartphone will have the minimum expectation that the new phone will let him make and receive phone calls. There are some expected gains the customer has from his purchase. Hence, even if a smartphone makes a call, we expect it to be sleek and visually appealing. There are desired gains that represent the customer’s wishlist. One such gain is for smartphones to be easily synced with other devices.

It is important to have clearly defined gains for the customer so products and services can be tailored accordingly. A customer is generally stuck with his needs and wants and if there is no need of the product, then marketing tools have to work harder to achieve desired goals. The more information one has about customer gains, the better the value proposition will appeal to the customer segment.

It is important to have clearly defined gains for the customer so products and services can be tailored accordingly